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Bitcoin – the future of money?

11 March, 2013

I’ve been watching the progress of Bitcoin with increasing interest for a year or two now and I’m a bit surprised I haven’t written about it here before. I’m writing today because the number of mainstream use cases of Bitcoin seems to have been growing recently and this morning I got an email from the Boost.vc accelerator saying they were reserving five of 15 slots in their next programme for Bitcoin companies. (Disclosure: Boost.vc is affliated with the Draper family and invested in Bitcoin startup Coinlab last year.)

As this is my first post about Bitcoin I’m going to start with a definition. From Investopedia:

Bitcoin is a massively disruptive innovation. The key is in the first sentence of the definition above – Bitcoin bypasses central authorities and issuers – meaning it replaces governments as the issuers of money. If it becomes widely used it will undermine the power of many of the economic policy instruments governments use today, including setting interest rates and quantitative easing.

By now you are probably wondering how it works. The short answer is that the inventors of Bitcoin developed an algorithm which determines how many Bitcoins are in circulation and put in safeguards to prevent third parties abusing the system by creating fake Bitcoins – there is more detail on Wikipedia.

I’m excited by Bitcoin because it has the potential to massively reduce the cost of transacting. Two examples:

  • fees to buy stuff over the web can be much less than the 2-3% taken by credit cards, and 
  • it removes the need for foreign currency exchange altogether.

I think that unnecessary bureaucracy in our financial institutions is a major driver of these costs and Bitcoin could cut them out.

Security has to be good, of course, and we still need to prevent money laundering (the cost of which is the other driver of the fees above), and Bitcoin isn’t there yet. It may never get there, large vested interests (e.g. the US government) will be threatened by Bitcoin and have already been working to shut the fledgling currency down, and there have been problems with hackers, and with currency bubbles, but momentum seems to be building, not faltering:

I’m not ready to predict that Bitcoin will cross the chasm, in fact I still think that is a long odds bet, but if the current momentum continues I’m starting to think that it might become a bet worth taking.

(Nic Brisbourne is partner at DFJ Esprit, one of Europe’s leading venture capital firms.  The post has been reproduced with the author’s permission from his blog, The Equity Kicker.)

To become a guest contributor with VCCircle, write to shrija@vccircle.com.


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John Cunningham . 5 years ago

Quantitative easing is doublespeak for rich banksters creating money out of thin air and loaning it to their rich friends. Those people invest it in things like housing bubbles. If they win big, they repay the principle and keep the interest for themselves. If their investment fails, the loan is forgiven. It’s a mechanism for the rich to get richer while the rest if us go broke. If Bitcoin can prevent the rich from screwing us over, we should all start using it immediately!

Carlos . 5 years ago

Ideally the concept is to revome the mess that has been created with factional reserve banking. Right now so much power is in the hands of the central banks. This power gives them the ability to control the amount of currency that is in circulation. In essence money is created out of thin air with no weight to it like the gold standard created. Money is built on trust in the value of that currency, which is very scary. You can even see in recent times how this type of system has created massive problems and will only get worse as time goes on. The only way I personally feel that currency can be fixed since we left the gold standard is to create a new currency with a relative value unit assigned to it. The relative value can be tied to something tangible. To supply a certain good or service it requires certain resources. Those resources being natural, human and others. For example it takes a specific amount of resources to produce a car. Machines, equipment, people working on it, natural resources like metal, plastics and time. These factors can be used to produce a RV for that car. Unfortunately I think there is so much money in circulation, that it would be near impossible to go back to the gold standard as there may not be enough gold available in circulation to match out the currency to. Why not create a balance of the commons of ALL available tangible resources and not just gold?The concepts I like of BitCoin are the fact that there is no central authority for currency. What you produce is what you own. You actually own that currency that you have produced using your resources and it has value based on the fact that others had to go through the same create that currency as you did. The idea of using CPU cycles is very geeky and not sustainable. The idea though that you have this resource and by using that resource you are producing something that holds value amongst those doing the same type of work place the value and trust in that currency. So when you go to work based on your education, work experience, skills, time spend doing your job, the actual work being done and even the value your employer feels you are worth to them can all be used as factors. That value of currency that you produce has no value that is set by factional reserve banking and the amount of currency in circulation. It is based on a true tangible asset like the gold standard used to be.Just my two cents.

Bitcoin – the future of money?

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